Johnstone Company owns 10,000 shares of Breva Corporation’s stock; Breva currently has 40,000 shares outstanding. During the year, Breva had net income of $200,000 and paid $160,000 in dividends. At the beginning of the year, there was a balance of $150,000 in Johnstone’s equity method investment in Breva Corporation account. At the end of the year, the balance in this account should be
Johnstone holds 25% (10,000 ÷ 40,000) of Breva’s voting common stock. Under the equity method, (1) an investor recognizes its share of the investee’s net income as an increase in the investment account:
Investment in Breva ($200,000 × 25%): $50,000
Income -- equity-method investee: $50,000

(2) a dividend from the investee is treated as a return of an investment:
Cash ($160,000 × 25%): $40,000
Investment in Breva: $40,000

Thus, at the end of the year, the balance in the investment in Breva account is $160,000 ($150,000 + $50,000 – $40,000).